what can we expect for 2017 from the fomc? - cumber · 2016-12-16 · the december 2016 fomc...

©Copyright 2016 Cumberland Advisors

®. Further distribution prohibited without prior permission.

A Registered Investment Advisory Firm

What Can We Expect for 2017

from the FOMC?

Dr. Robert Eisenbeis

Vice Chairman & Chief Monetary Economist

[email protected]



The December 2016 FOMC Meeting

• This slide deck is intended to detail how the FOMC saw the economy at its

most recent meeting, its assessment of progress towards achieving its dual

mandate of maximum employment consistent with price stability, and what if

any policy decision it may have made.

• It reviews the current aggregate data available to the Committee on GDP

growth, employment and prices.

• This is followed with summary information on the evolution of the Committee’s

forecasts and the rate assumptions made by Committee participants that

underlay their forecasts.

• The presentation concludes with some observations on the likely path for the

federal funds rate

• As the result of the December meeting, a dissection of the information that will

be available to the Committee at subsequent meetings in 2017, and an

assessment of the views of the voting members of the Committee, we suggest

that there will be at most two rate moves in 2017 – not the three widely

discussed in the financial press.

• Of course, the actual decisions will be based upon incoming data.2



FOMC December Statement

• What did the FOMC say in December?

– Labor market has strengthened

– Economic activity has expanded at a moderate pace

– Household spending increasing at a moderate pace

– Investment spending remained soft

– Inflation increased since earlier this year, still below its 2% target, partly

due to energy prices and non-energy imports

• What data is the FOMC looking at?

– GDP

– Employment

– Inflation

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®. Further distribution prohibited without prior permission. 4

Q3 GDP Is Now at 3.2% on High End of Moderate

After reasonable numbers in 2014, the economy has been in a funk

Three consecutive quarters of growth at less than 1.4% before Q3 2016

1960-1970 GDP Growth: 4.4% 1983-2006 GDP Growth: 3.5%Source: Haver Analytics

Source: Haver Analytics



Contributions to Growth

Consumer spending was actually

Down y/y and more in line with

Spending in 2015 than Q2 2016




Corporate Profits Lag GDP and Imply Modest Growth




Job Growth Strengthening?


Economy created an average of 229K jobs per month in 2015 v 181 per month in 2016



We Are Too Complacent on Jobs

• If the economy created the same number of jobs per dollar of real GDP

that it did

– From 1960 to 1970, we should have had 4 times the 459k we had in

2Q2016

– From 1983 to 2006 we should have had 2 times the number of jobs we had

in 2Q2016

– In short, the economy is not producing jobs at the rate it should and by

historical standards we are way behind

8



PCE is Far From 2% Target But Narrowing


Gap has narrowed from 1.82 in Oct 2015 to .6 in Oct 2016



What/When Will the Fed Know?

As of December, the FOMC will only have a revised Q3 2016 GDP number and two more

reading on employment and inflation.


FOMC Mtg Dates GDP Employment Inflation

29-Nov Q3 2016 2nd est. (3.2%) Nov 30 for Oct (161K) Nov 4 for Oct (1.4%)

2016 December 13-14

22-Dec Q3 2016 final Dec 22 for Nov Dec 22 for Nov

27-Jan Q4 1st est. Jan 30 for DecJan 6 2017 for Dec

2016

2017 Jan 31-Feb 1

28-Feb Q4 2016 2nd est. Mar 1 for Jan Feb 3 for Jan 2017

Mar 3 for Feb

2017 Mar 14-15

30-Mar Q4 final Mar 31 for Feb Apr 7 for Mar

28-Apr Q1 2017 1st est May 1 for Mar

2017 May 2-3

26-May Q1 2017 2nd est. May 30 for Apr May 5 for Apr

June 2 for May

2017 June 13-14

29-Jun Q1 2017 final June 30 for May July 7 for June

2017 July 25-26

28-Jul Q2 2017 1st est. Aug 1 for June Aug 5 for July



GDP, Unemployment, Inflation

Source: Federal Reserve



Unemployment




PCE Inflation




PCE Inflation – Core




Projected Federal Funds At Yearend




Who Are the Dots?

• It matters who the voters on the FOMC and not the median or range

• Six FOMC members see only one or two rate moves in 2017

• Who might they be?

– Bullard is one of the low dots, we know

– At least 4 of the 5 Fed Board members are among the low dots

• Maybe Fischer is not

– President Dudley is one of the low dots

• It takes now 6 votes to determine policy.

• With 5 board members and 5 Fed Presidents voting on the FOMC, only one president

and 5 governors can determine policy

Board Members Bank Presidents Voting in 2017

Yellen Dudley (FOMC Vice Chair)

Brainard Evans (likely favoring low rates)

Fischer Harker

Powell Kaplan

Tarullo Kashkari



FRB Director Discount Rate Forecast


Evans Dudley Kashkari

Kaplan



Disclosure

All material presented is compiled from sources believed to be reliable. However, accuracy

cannot be guaranteed. Past performance is no guarantee of future results. All investments

involve risk including loss of principal. Fixed income investments are subject to interest rate

and credit risk.

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what can we expect for 2017 from the fomc? - cumber · 2016-12-16 · the december 2016 fomc...

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